Binance yesterday withdrew its offer to acquire FTX, hours after being hailed as the exchange's savior, citing a failed corporate due diligence and probes into the improper handling of customer assets by US regulators.
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For no one, this is scarcely good news. The cryptocurrency exchange will have to declare for bankruptcy if they can't come up with the money they need to stay solvent, which is expected to cost between $4 billion and $8 billion. It means that clients of FTX are less and less likely to recover all of their assets at the exchange, if any. It might have negative impacts on the crypto market as a whole, reduce confidence in its ecosystem, and bring authorities' scrutiny even closer.
Now, whether or not you invest in cryptocurrencies, there are three things to take away from that mess:
Always pay close attention to everything utilized as collateral. In the example of FTX, the business was taking out a loan and using its own tokens as security. When things are going well, that sounds like a terrific concept, but it would be disastrous if things went bad since the collateral value would fall just when the business needed it the most. It actually occurred this week, as Jon reveals in this passage.
Keep an open mind and have no faith in anyone. FTX was viewed by many as being safer and being operated with greater integrity than some other smaller exchanges. The realization that things were much more difficult than that only required one significant selloff. Don't be fooled—crypto is still the wild, wild west and is very opaque. As such, you shouldn't put your trust in anyone and should constantly prepare for the worst.
Not your coins, and not your keys. Just be aware that you are putting your trust in the exchange when you purchase cryptocurrency there. There are risks even though they're not all bad. So, if possible, choose self-custody crypto storage solutions rather than using your cryptocurrency for trading or lending out to generate a reward.
The most important lessons, though, might not be learned for a few weeks. Stricter regulation, a decline in investors' risk appetite, and declining liquidity may be the biggest tests that cryptocurrency has yet to face. But perhaps that is what is required to make the sector more resilient after this.
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